Yahoo: DSL service won't be late

The Web portal says it won't miss its deadline for introducing its high-speed service with telecom giant SBC, but analysts are voicing concern.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
2 min read
Yahoo on Tuesday reiterated that it will not miss its deadline for introducing its high-speed service with telecom giant SBC Communications, despite concerns by some Wall Street analysts to the contrary.

"As previously stated, Yahoo and SBC expect to launch SBC Yahoo DSL (digital subscriber line) by the end of the third quarter," said Yahoo spokeswoman Helena Maus, referring to the fiscal quarter ending Sept. 30.

Any delay in the launch of the product could have financial consequences. Wall Street expects Yahoo's partnership with SBC to add as much as $30 million in revenue for the year. That's not a significant percentage of revenue for the company, but any shortfall in projections could sour Yahoo's already shaky relationship with investors.

So far there have been no indications that the company will miss its deadline. But analysts are expressing concern over whether Yahoo will meet its revenue estimates.

The agreement between Yahoo and SBC, inked last November, was heavily touted by the Web portal as a significant step in diversifying revenue. Although the specifics of the deal were not disclosed, Yahoo said it would gain a percentage of access revenue and offer a cut of advertising to SBC for all advertisements sold on the service.

Yahoo executives said the product would package a handful of paid "premium" services to subscribers. Over the past year, the company has introduced a smattering of paid services such as extra e-mail storage, e-mail forwarding, and personals listings. The company said in its earnings call last month that it has 1 million paid users and hopes to sign on as many as 10 million.

Any delays affecting its DSL service could hurt Yahoo's stature on Wall Street. Analysts said Yahoo estimated that in 2002 it would receive $20 million to $30 million in revenue from its DSL partnership with SBC. Reaching that level could be challenging if the DSL product does not launch until the end of September, leaving only three months to make that revenue mark.

It's difficult to say whether Yahoo and SBC can sign up enough customers given the time it takes to offer upgrades and installations to existing customers. The advertising market remains in the doldrums, and it's unclear how much of a cut in access revenue SBC will offer Yahoo.

At best, Yahoo would receive less than $10 a month per subscriber, WR Hambrecht equity analyst Derek Brown speculated.

"The numbers become almost impossible to achieve, given these assumptions," Brown said.

That's not to say the partnership hasn't had its benefits so far. Yahoo and SBC unveiled their co-branded dial-up ISP (Internet service provider) in June, which will charge people $21.95 a month for access.

Most analysts are not yet fretting about a potential revenue shortfall. Instead, there remains a wait-and-see attitude, which characterizes the mood toward Yahoo's turnaround plan over the past year.

"At this point, I don't have any reason to believe they won't make numbers that have been published," said Jeffrey Fieler, an analyst at Bear Stearns.